Luke Gromen, from Forest for the Trees, gives Michael Green his perspective on China’s moves to disintermediate the dollar, through its development of gold contracts and trading for oil in RMB. While ultimately resulting in more money printing by the Fed, Luke envisages a non-US dollar-backed banking system spurred by China and Russia. Filmed on September 27, 2017 in New York.

Comments

Would it be possible to get a bit more of a description of this phenomenon?
"People were scrambling for gold. And because the price of gold is set by a paper denominated liability, when you remove the
underlying collateral-- when there's a run in gold-- the price of gold doesn't rise. The price of gold crashes."
This is a somewhat counter intuitive statement. I can imagine that perhaps w/ a lack of trust in delivery, market participants could simply not transact and volume might dry up. Are you suggesting there is some reason why the price should actually go down?
Any help appreciated.

Mike Greens interview style always adds tremendous value in my view. The challenging of views and presentation of different viewpoints is very important compared to just having someone talk about a topic without real interruption - dialogue vs monologue. Especially as we are dealing with topics of uncertainty here and no laws of physics.

Great interview. In some ways too short, but in other ways perfect - very, very thought provoking. It would be good to get a follow-up interview done by another interviewer to ask questions from a different point of view in a month or so.

The yuan-dollar peg is the issue here. If they try to buy dollars with yuan that means that they are selling yuan, i.e. putting downward pressure on their currency. The same is happening with Switzerland, but they want their currency weak, the Chinese don't. (Probably out of fear of losing control?) Buying oil means buying dollars first, so same problem there. However, if you manage to create a reserve currency, then the yuan you sell don't end up floating around and risking to put downward pressure on your currency but are kept as reserves somewhere. That's when the magic happens and you can start printing to export your currency. To some extend you even "must", c.f. Triffin dilemma.

So eventually it boils down to comparing the importance of China losing its ability to print Yuan through its trade surplus (US trade policy retaliation) vs. having the ability to print Yuan for Oil?
Also, I think that Gromen underestimates the potential for wage inflation and larger share of GDP going to labour to increase US tax receipts going forward (44% of US tax receipts are personal taxes vs. 13% for corporate).

Excellent interview! Please feel free to add any chart that is mentioned in the interview! Their is (in my opinion) no such thing as too many charts. And as pointed out several times, there would be no too long interview with these two brilliant people either! May I suggest a 30 minute version & an "opened ended" version? That way everyone would be happy, wouldn't it? I also believe that there is no such thing as too much depth.

Something seems to be missing. In the first interview, Luke laid out his hypothesis, which was (I believe), that (i) China can now see, with little doubt, that the US governments $100 trillion of unfunded liabilities will be printed away over the next decade, or so, and it greatly fears the disruption that this printing of the reserve currency could cause to its own economy, given that it is such a large importer, particularly of oil and; (ii) China also sees that the US has increasingly used the dollars reserve status for political ends, creating another long term risk and; (iii) for China, economic stability is everything, as instability could undermine its system of givernment and; (iv) for these defensive reasons, therefore, China is spearheading a de-dollarization of oil and other commodities, effectively using gold as the future reserve currency. In that first interview, Mike brilliantly probed Luke's logic and the hypothesis survived that scrutiny. With this second interview, however, the discussion seems to have jumped to China's possible de-dollarization being more offensive and therefore somehow optional. What happened in between? It looks as If this second interview has been edited down from a longer discussion, with a vital piece of the puzzle edited out, to cut the length down to an arbitrary 30 minutes. If so, a request for Real Vision to reinstate the missing piece? This is such an important topic.

The most thought provoking interview in a long time.
New perspectives inspired by this interview:
Declining velocity of money is generally recognized and understood. Declining volatility combined with increasing passive investing may be resulting in longer holding periods and reduced equity market turnover. Implications??
Weaponization of the dollar. Great topic. Needs more emphasis in future interviews. Bitcoin (and other cryptos could play a role here. The issue is "How to escape the dollar?" and "How to escape the US Banking system?" After much experimentation by other governments one of the likely outcomes is Bitcoin is widely adopted where the lack of sovereign control is the most desirable feature. Similarly, ICO's may be the answer to "How to escape US capital controls and US financial system capital market domination?" such as mark to market suspension, Dodd Frank, restrictions derived from KYC such as accredited investor status, US bond market bear market, unwind of the Fed balance sheet and Plunge Protection.
The possibility of a short violent spike in the value of the dollar may be a fantastic opportunity for individual investors to outperform institutional investors. Unleveraged foreign real estate comes to mind.
More productions like this - please!

Luke Gromen, you champion.
What depth and insight.
I've watched this piece 3 x and listened to FFTT work over and extended time including Macro Voices podcast here: https://www.macrovoices.com/302-luke-gromen-the-biggest-mean-reversion-in-50-years-is-underway
And associated Slide Pack Here: https://www.macrovoices.com/guest-content/list-guest-publications/1165-luke-gromen-slide-deck-for-september-7th-interview/file
I'm convinced. Your view = most probable.
Therefore - USD devaluation is going to continue after this short covering Trump tax plan bounce.
I've positioned accordingly.
I would echo the other comments - this guy should not be limited to 30 min interview - he likewise should be interviewed by A team reps like Grant or Raoul who can at least appear impartial, rather than 'appear' to be defending a particular published/house view.
RVTV - KUTGW.
MR

For more on the topic, check out this amazing piece of geopolitics also looping in Saudi, Germany and East Europe as part of the longer term Chinese plan.
http://www.zerohedge.com/news/2017-08-19/gavekal-coming-clash-empires-russias-role-global-game-changer

Excellent from both Luke and Mike. But I add my support for longer interviews ... I personally think even a full hour is too short to listen to some of the finest minds in finance discuss current issues!

Very good interview - thought-provoking and some fascinating takes on the USD situation and the platform China has been creating. Agree with previous comments that interview could have continued much longer and made for excellent viewing. (I have seen quite a few interviews on RV which were not nearly as strong, yet were double the time). In any case, great viewing as always.

I think its to do with the selling (or loss of demand) for paper gold. The headline price is dictated by demand/supply of paper gold and is not determined by physical demand/supply now.
So, given a circumstance/event (arguably in the making) demand for paper evaporates/paper gold is sold, the paper price crashes (paper market collpases). There will be demand for physical of course, if you can find it (unlikley, without a revaluation). I'm talking about a re-jigging or ending (however you prefer to think of it) of the so-called paper-ponzi, here.
Also, whilst there's enough flow of physical gold, the paper gold market in particular can continue. If the flow stops, the paper gold market ends/price crashes.
Its a long story and Im not the best at explaining it. The 'Fofoa' blog explains it better.

The only object for foreign currency reserves in exchange rate manipulation.
The USD has already hyperinflated. Public (foreign central bank ) support for the USD (indicated by the growth in USD reserves) has already stopped and it is private demand for USD and USD denominated assets that is supporting the USD/the current system.
Anyways, purely floating fiat exchange rates (without manipulation) may be the ultimate end point.
The complete disintermediation of gold from the currency system and the use of physical gold as purely a private wealth reserve/savings asset (not a determinate of the so called medium to long term value of currency/mediums of exchange - this isnt necessary).
I think these ideas would be familiar to Luke.

Excellent discussion that did not flesh out all of the ramifications.
What is Wealth? Luke said Gold and Oil. When the Chinese establish their yuan for oil and yuan for gold markets, what happens to the price of gold and oil? If the Chinese implement both strategies, what are the chances for war whether actual, cyber or financial?
I would further bifurcate wealth into movable wealth and immovable wealth. Real estate, land and oil in the ground are immovable wealth, while gold, art and oil on a tanker are movable wealth. Immovable wealth is subject to the control of whatever country in which the immovable asset is located. In Argentina 2000, a USD dollar account with Citibank in Buenos Aires was devalued 75% by the forced conversion to Argentinian Pesos. Luke alluded to a dollar devaluation such as the Plaza Accord. Is holding USD cash inside the US a risky strategy?
In the next financial crisis will even movable wealth be movable or will capital controls and/or the closure of financial markets freeze all positions status quo ante bellum?
I would hope that interviews would consider the possibility of multiple future scenarios so readers are not caught flat-footed when the next crisis arrives. Help us expand the realm of the possible.

Had been looking forward to this interview since Luke's last interview. Superb. Luke mentioned several A vs B charts, but few of them made it to the overlay. Missed a few opportunities to enhance the viewing experience.

Fascinating discussion, and yes it would have been great to run this to an hour long discussion to let them get into the nitty-gritty of this very important topic. It could be the game changer for the next decade (yuan convertibility and setting up an alternative to the US dollar denominated world (SWIFT etc)).

Agreed. Who made the call to cut the interview short? Luke, Michael, Milton? Did Luke run out of things to say? Clearly no. Did Michael run out of questions? Doubt it. Did Milton call a it a wrap? I assume it's the latter, in which case someone needs to knock that ventriloquist dummy upside his wooden head and remind him why most folk invest in RV in the first place, which is an opportunity to delve deep on critically important topics that MSM only skim or ignore entirely.

Video length is a very important topic because time is the most valuable thing we have. I put my faith in RV team that they going to make the right decisions on what is important and what is no so much and make the video optimal length.